The academic research (e.g. Santa Fe institute work referenced in Jarrod Wilcox’s “Investing by the Numbers”, an excellent book for LessWrong-ish people), suggests that while truly passive indexers do not cause problems directly, they can cause problems in other ways.
They tend to amplify the effects of momentum players and price insensitive growth-oriented traders for example. In sufficient numbers they can therefore indirectly destabilize the market.
When they are not really indexers but picking sectors to “index” in, they certainly can add to the chaos.
The academic research (e.g. Santa Fe institute work referenced in Jarrod Wilcox’s “Investing by the Numbers”, an excellent book for LessWrong-ish people), suggests that while truly passive indexers do not cause problems directly, they can cause problems in other ways.
They tend to amplify the effects of momentum players and price insensitive growth-oriented traders for example. In sufficient numbers they can therefore indirectly destabilize the market.
When they are not really indexers but picking sectors to “index” in, they certainly can add to the chaos.